Company
For over 100 years, Ballarini Paolo & Figli s.p.a. has been operating in the production and sales of aluminium utensils for the kitchen.
After the introduction of aluminium in the 1920s, the Company continued its product innovation in the '60s by adding to the superior characteristics of aluminium those of non -stick lining, thus specialising in the production of non-stick pots and pans able to guarantee the best performance on the market as far as long-life, practical use and function are concerned. With an amply positive growth trend, with a turnover of 53 million Euro (30 million in '96), 12 million pieces produced per year and an offer of 4 000 items, "Ballarini Paolo & Figli s.p.a." stands as leader in A-class non-stick cooking utensils.
The market penetration of the company, which boasts a portfolio of 2 500 clients and is present in over 40 countries- with an export base which represents 70% of its turnover - can be explained by its matured technological know-how and its differentiation strategy in the creation of specific product lines for channel distribution. With its "Gold" trade-mark for the qualified retail market, "Red" for wholesale and "Eurocast" for large distribution, as well as "Ballarini Promotions" for the "Promotional Agencies", the Company is present on the market and meets the different demands as far as cost, delivery speed and production flexibility are concerned.
In its historical head office in Rivarolo Mantovano (MN), all the production process phases are still being carried out, from coil machining (raw material) for aluminium disk production up to the finished product. At present, the Company has over 250 employees and outsources about a dozen people for the finishing process - typically for the packaging activity - with a view to making even more versatile and speedy the adaptation of the productive mix to the sales demands.
Business Challenges
Collaboration with SDG consulting started in 1997 with the setting up of a Commercial analysis organisation oriented at guiding the Company towards the setting of new objectives and business strategies. After this first phase which was successfully implemented, the attention of the Work Group focused upon the development of a new model for turnover analysis which forecasts the revision of estimate logic of the full product cost. What transpired in a strong manner was in fact the need to introduce a system of cost accounting which adopted the apportionment of costs in coherent tandem with the effective use of the Company resources. It is true that the various business areas - production lines and markets, - absorb both the specific resources, such as dedicated plant costs, legal costs and marketing activity costs, and the common resources (warehouses, administration costs, etc.), for which it is not possible to pinpoint a direct and immediate connection with the costing object. The accounting model which has been established to obtain the answers to this demand is that of Activity Based Costing (ABC). According to this approach, the products affect the costs due to the activity which is required in order to plan and design, manufacture and sell. Cost absorption in the various activities is, furthermore, quided by parameters which identify the single product (cost drivers), through apportionment of costs that will reflect the effective performance of the activity of the product - both direct and indirect - all along the company cycle.
The Activity Based model in Ballarini is implemented according to the typical phases of the SDG methodology, from mapping out the processes, to their breakdown into elementary activity and definition of allocation drivers, up to the revision of the accounting and extra-accounting surveying system in accordance with the new business model. The ABC approach used today in Ballarini provides for the use of 20 different drivers for costs charging to over 80 activity ramifications of the Company. Furthermore, it allows for the analysis of turnover components associated with all the analyses dimensions as defined in the sales module: clients, product, channel, line, etc.
BOARD Solution
Through the development of the project, the need arose to go beyond the analysis of the final balance data and to endorse a simulation phase connected to the definition of sales offers. The need translated into the utilisation of a series of planning operations so as to gear the cost of the product to the various quarterly sales and production configurations regarding each offer. The final balance data obtained through elaboration of the quarterly balance became the starting base for the determination of new costing scenarios. In this context, the "Offers Handling" project was set for the Work Group operation for the 2nd six-monthly period for 2002.
The objectives set by the Work Group were multiple:
- to set up a compilation, filing and sales offer consultation system;
- to set up an applicable pricing list;
- to develop a flexible instrument for estimation of the full cost of the product;
- to simulate the costing of a new article;
- to carry out "what-if" analyses;
- to overcome the limits of the present formulation process for offers based upon electronic sheets, without any updated and credible data, like for instance basic bills of material, transformation times, direct and indirect production and structural costing.
In order to meet such requirements we have developed a new definition and handling module for sales offers through the M.I. BOARD technology. The model used is based upon the Activity Based Costing approach, which was duly revised simulation-wise: the possibility of operating on final quantities by planning levers to determine the new costing of the article. In particular, for each sales offer, all the determining costing factors for the different activities have been re-estimated and reallocated on the articles through driver pre-definition. The resulting article cost is articulated according to the following structure: Aluminium cost
- Other raw materials costs : paint, “manicatura” (handles, etc.) components
- Direct labour costs: the result of standard time product for per hour rate activity;
- Indirect Production costs: these are allocated on the articles according to the specific distribution criteria for every activity
- Other indirect costs: sales costs, administration costs, other structural costs.
In particular, the compilation process of the offer provides initially for the definition of the header information, and that is, for the parameters common to all the articles: Client data, sales conditions applied (discounts, commissions, etc.). Particular emphasis is given to offers for aluminium which represent a fundamental variable when determining the costing of a product. With regard to the final system, it is possible to operate by simulating oscillations in the cost of raw materials, of transformation or on the acquisition of semifinished alternatives.
The process continues with the indication of the articles that make up the offer and the definition of the suitable technical and dimensional characteristics:
- diameter and thickness of the aluminium disk from which the finished product is obtained; diameter and thickness variations have an impact on the costing of aluminium, paint, and working times;
- technological cycle: for any article it is possible to forecast a new technological cycle by identifying for each of the main phases of the production path, a different working operation among those available. The system provides, therefore, for the formulation of hypotheses by determining, for example, the cost of production of an article on the enameling line rather than on the rolled items, or an alternative working performance for the application of non-stick lining;
- bill of materials: with regard to what is indicated under the reference bill of materials, there is the possibility for modification of the paint used for the inner lining, for the external part, for all the "manicatura" components (handles, "goujons", screws), and for the packaging (labels, brochures).
The process ends with the filing of all the parameters which are thus made available for any future consultation or modification. The offers handling system as developed by Ballarini represents an innovative application of the cost accounting model in which, over and above the "traditional" strategic valence, a contribution is added to the more operational and tactical phases which are normally not supported by adequate methods and instruments.
The production process starts from an aluminium coil or strip which undergoes a rolling mill process and subsequent trimming. In this manner we obtain a semifinished product with cylindrical form called "disk" with the dimensions, in terms of diameter and thickness, of the finished product. At this point, the technological cycle is differentiated according to the model and type of product and provides for numerous machining operations according to five main typologies:
- thickness: machining operations which determine a modification/reduction of thickness of the disk (for example: lightening, coining, ...);
- sandblasting: machining operations able to increase the adherence capacity of the non-stick film on the surface of the disk;
- internal varnishing operation: machining operations regarding the application of the non-stick film which is differentiated according to the type of non-stick agent and the technology used
- external varnishing operation: three technological runs are available: coating, powders, enamel
- finish: this groups the machining operations required to obtain the finished product, like "manicatura", insertion of accessories (covers, grids) and packaging.